(Reuters) – Federal Reserve Board Governor Lael Brainard on Friday laid out the case for the U.S. central bank to take climate change risks into account as part of its financial stability writ, pushing back against some Republican lawmakers who say doing so would be ill-advised.
“The Federal Reserve has been making important progress in laying the groundwork to incorporate climate considerations where they are material and relevant to our statutory responsibilities, today and in the future,” Brainard said in remarks prepared for an online event held by the Center for American Progress.
And she went farther, flagging “significant opportunities” for collaboration with other U.S. financial system regulators on climate change risk in coming years. “These efforts can help equip the deepest financial market in the world to support our dynamic private sector in assessing and addressing climate-related risks and investing in the transition.”
The Fed earlier this week officially joined an international group of central banks focused on climate change risk, its most definitive sign yet of a new readiness to use its regulatory and research clout to mitigate the effects of global warming on the financial system.
Its focus there, Brainard said, is on filling in data gaps so as to better understand macroeconomic, market, and market participant risk related to climate change.
Global warming can threaten financial stability in a number of ways, including through abrupt asset price changes stemming from climate-related disasters like increasingly intense wildfire or hurricanes that then reverberate through financial markets.
“Over time, it will be important to develop a framework for evaluating how banks are taking into account climate-related risk in their modeling and management of credit, market, liquidity, and operational risks,” Brainard said.
Last week, 47 Republican lawmakers, including about a third of the House financial services committee that helps oversee the Fed, wrote to Fed Chair Jerome Powell raising concerns that climate-oriented regulations could make it difficult for oil and gas companies to access capital.
(Reporting by Ann Saphir; Editing by Andrea Ricci)